South Korea Backs Funding for Startups

Job seekers attended a job fair at the Busan Exhibition and Convention Center on Tuesday.

South Korea is gunning for its own version of Silicon Valley, and the country’s entrepreneurs are happy it’s making the move.

The government on Wednesday unveiled plans to unleash 3.31 trillion won ($2.97 billion) in funding to nurture startups, particularly in the technology sector—part of President Park Geun-hye’s growth initiatives and efforts to ease the country’s dependence on manufacturing. The funding will be used largely for subsidized loans or state-funded investments in new companies.

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The government is also offering tax incentives to encourage mergers and acquisitions among startups, and easing business regulations to allow big companies to engage in M&A deals involving fledgling companies that need funding.

“I’m so glad as it will be good [for startups],” said Go Young-ha, chairman of Go Venture Forum, which leads an association of angel investors in Korea. Mr. Go said the latest package would help draw more individual investments to business ventures.

Under the government’s plans, angel investors receive tax cuts and can defer tax payments as long as they reinvest their returns from previous investments in business ventures.

Lee Sir-goo, co-chief executive officer of mobile messaging and games provider Kakao Corp., said the measures will help draw funding to the startup ecosystem where it is needed.

“Kakao continues to do M&As, and it [the new government package] is expected to encourage further M&As and stimulate the ecosystem in the business venture industry,” he said.

Yang Joon-chul, CEO and founder of Onoffmix, which offers an online booking service for social events, said a number of relatively good but little-known startups in the country are awaiting angel investors.

But Mr. Yang expressed caution about the effectiveness of the new policy measures. “We need a success story first.”

The Seoul government plans to introduce a crowd-funding system, through which new ventures can raise seed money from a number of small investors. The government is also considering launching a third stock market—tentatively called Korea New Exchange–for small business ventures, alongside South Korea’s two stock markets.

“It will take time to launch the KONEX market here because few countries in the world have reported success in keeping such a third market,” said Kelvin Kim, CEO and founder of IDINCU, which provides a smartphone-based market research service.

The Korea Capital Market Institute estimated that the government measures will translate into a 4.3 trillion won increase in venture investment over the next five years.

The latest government data show the number of angel investors in South Korea numbered 619 in 2011, sharply down from 28,875 in 2000. As of March 31 this year, there were 28,731 startups across the whole industry in South Korea. Nearly 90% of them were in the manufacturing and computer-software developing sectors, according to the Small and Medium Business Administration.